Five Michigan health systems and 24 of their hospitals have signed performance-based managed care contracts with Detroit-based Blue Cross Blue Shield of Michigan.

The reimbursement contracts give hospitals financial incentives to work closely with physicians to improve quality and safety while reducing unnecessary tests, hospitalizations and diagnostic procedures.

The new contracts include Oakwood Healthcare, a five-hospital system based in Dearborn; Botsford Hospital in Farmington Hills; Ascension Health Michigan and its seven hospitals; and MidMichigan Health, which has hospitals in Midland, Gladwin, Clare and Alma.

Blue Cross already has similar contracts with five-hospital St. John Providence Health System, the Warren-based Catholic system that is part of Ascension Health Michigan.

Patrick McGuire

"We are excited about entering into this new payment methodology with Blue Cross to reward high-quality, cost-effective care," Pat McGuire, CFO of St. John and Ascension Health Michigan, said in a statement to Crain's.

"We have been working with our physician partners on keeping our patients well, not just treating them when they are sick, for a number of years, and this methodology puts alignment between what we are doing and how we are paid."

Royal Oak-based Beaumont Health System also has expanded its agreement to include its hospitals in Royal Oak, Troy and Grosse Pointe.

Last year, Blue Cross signed similar contracts with Livonia-based CHE Trinity Health-Michigan, which operates five hospitals in Southeast Michigan, and Traverse City-based Munson Healthcare.

Dan Loepp

In a statement, Blue Cross CEO Dan Loepp said the new reimbursement model is making health care more affordable by keeping patients healthy and costs down.

"Our new approach to reimbursement puts the patient front and center and represents a new standard for how hospitals are paid," Loepp said.

Under the agreements, hospitals must work with physicians and other medical providers to develop systems that include an all-patient registry that allows hospital and medical office staff to measure an individual's health against the health of similar populations.

The registry is designed to allow the hospitals and physicians to more effectively track and coordinate care to reduce overuse and improve quality.

"Instead of paying solely for the volume of services provided, we can now leverage our reimbursement approach to incentivize collaboration and focus on rewarding patient outcomes," Susan Barkell, Blue Cross' senior vice president for health care value, said in a statement.